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ACCOUNTING & AUDITING WITH
EXCEL
PRESENTER: KOLONEIZEE HORATIUS PORTE, BBA
FOR STAFFS AT
PARKER & ASSOCIATES, INC.
81 Sekou Toure
Mamba Point, Monrovia
TABLE OF CONTE NTS
I. Methodology
II. Objective of the Training Program
III. Overview of Excel
 Inserting Formula
 Copying, Cutting and Pasting of Formula
 Auto Filling of Formulas
 Relative and Absolute Cell Referencing
 Other aspects of Excel
3/24/2015 4:21 PM Parker&Associates, Inc 2
TABLE OF CONTENTS
IV. Analytical Procedures (SAS 56/AU 329)
Analytical Tests
 Horizontal Analysis
 Vertical Analysis
 Trend Analysis
 Performance Measures
 Ratios and Formula Evaluation
 Stratification
Sampling
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M E THODOLOGY
 A brief overview of Microsoft Excel and its basic functions and
features
 Practical exercises to see the impact or importance of Excel
features in Accounting & Auditing.
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OBJEC TIVE
• To be able to work with basic features in Excel
efficiently and effectively for Accounting and
Auditing purposes.
* Our case study will be West Electronics
engagement workbook/spreadsheet.
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OVERVIEW OF EXCEL
 INSERTING OF FORMULA
To insert a formula in Excel, follow the following steps:
- Select the cell in which you want to insert
the formula
- Begin by typing the “Equal sign” (=)
- Type/select your cell references, eg D10
- Press Enter or click on a different cell.
Note: In order to get an answer/good result make sure there are
figures in the cell references you type /selected. Also remember to
close a parenthesis if you begin with one.
Example: =B10+D10, =(B10-C10), =(D25*C13) & =B10/D10
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• COPYING, CUTTING & PASTING OF FORMULAS
To Copy:
- Select the formula cell by clicking on it;
- Go to Edit Menu and click “Copy”; for shortcut use the Ctr+C for
copying formula;
- Select the cell to wish you want to paste and go to Edit Menu and
click Paste or shortcut use the Ctrl+V for pasting and press Enter.
To Cut:
- Select the formula cell by clicking on it;
- Go to Edit Menu and click “Cut”; for shortcut use the Ctr+X for
cutting formula;
- Select the cell to wish you want to paste and go to Edit Menu and
click Paste or shortcut use the Ctrl+V for pasting and press Enter.
NOTE: There is a difference between “Copy” and “Cut”. Copy is
duplicating formulas while Cut is moving formula from one cell to
another without the original remaining.
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A U T O F I L L I N G
• To Auto-fill:
- Select the formula cell of which you want to auto-fill by
clicking on it;
- Move your curser to the lower right corner of your
selector;
- The curser turns into a small black cross “+”, click and
drag to the position you want to auto fill
- Press Enter when you are through.
Note: The selector is the black rectangle on the
worksheet in Excel.
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RELATIVE AND ABSOLUTE CELL REFERENCING
RELATIVE CELL REFERENCING
In Excel, a relative cell reference identifies the location of a
cell or group of cells. Cell references are used in formulas,
functions, charts, and other Excel commands. By default, a
spreadsheet cell reference is relative. What this means is that
as a formula or function is copied and pasted to other cells,
the cell references in the formula or function change to reflect
the function's new location. A relative cell reference consists
of the column letter and row number that intersect at the
cell's location.
• An example of a relative cell reference would be C4, G15, or
Z2345.
Note: When listing a cell reference - either relative or
absolute, the column letter is always listed first.
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• ABSOLUTE CELL REFERENCING:
In Excel, an absolute cell reference identifies the location
of a cell or group of cells. An absolute cell reference
consists of the column letter and row number surrounded
by dollar signs ( $ ). An absolute cell reference is used
when you want a cell reference to stay fixed on a specific
cell. An absolute cell reference does not change when a
formula is copied and pasted to other cells.
• An example of an absolute cell reference would be
$C$4, $G$15, or $A$345.
Note: An easy way to add the dollar signs to a cell
reference is to click on a cell reference and then press the
F4 key on the keyboard.
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OTHE R ASPEC TS OF E XC E L
• Linking
• Charts
• Formatting of Cells
• Etc…..
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Analytical Procedures (SAS 56/AU329)
SAS 56 provides guides on the use of analytical
procedures and requires the use of analytical
procedures in the planning and overall review
stages of all audits. Analytical procedures are
used:
• To assist the auditor in planning the nature,
timing, and extent of other auditing
procedures.
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• As a substantive test to obtain evidential
matter about particular assertions related to
account balances or classes of transactions.
• As an overall review of the financial
information in the final review stage of the
audit.
• To detect potential financial misstatements.
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ANALYTIC AL TESTS
Analytical tests are evaluations of financial information
made by a study of possible relationships among both
financial and nonfinancial data. They are used to assess
whether account balances appear reasonable and are
used in accordance with SAS 56. We will explore the
following types of analytical tests:
- Horizontal Analysis
- Vertical Analysis
- Trend Analysis
- Performance Measures
- Ratios and Formula Evaluation
- Stratification
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Ho rizo nta l Ana lysis
Horizontal Analysis computes the increase and
decrease in a given balance, normally financial
statement items, over two or more periods.
Open Excel spreadsheet (absolute_relative.xls)
for example.
NOTE: Relative Cell reference is
use in Horizontal Analysis.
In this example we want to write a formula once in
Cell E10 and fill the formula down to get a better
sense of this issue.
Example
CY PY Inc (dec)
Cash $56,000 $57,988
Accounts
Receivable $122,000 $115,964
Prepaid expenses $13,522 $14,500
Inventory $521,332 $592,481
Investments $19,451 $21,558
Deposits $2,511 $2,511
Intangible $74,153 $74,103
Goodwill $83,941 $83,281
Automobiles $58,771 $68,114
Improvements $26,571 $26,714
Leasehold $74,221 $74,183
Furniture, fixtures $84,211 $84,333
Computers $141,283 $158,741
Land $125,114 $125,114
Total $1,403,081 $1,499,585
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VE RTIC AL ANALYSIS
Vertical Analysis examines the elements of a financial
statement for a single period whereby each balance sheet
asset is shown as a percentage of the total assets and every
income statement items shown as a percentage of the net
sales, etc.
Open Excel spreadsheet (absolute_relative.xls) and click the second
worksheet for example.
NOTE: Relative & Absolute Cell reference are
use in Vertical Analysis.
In this example we want to write a formula once in
Cell D10 and fill the formula down to have it
work.
CY % of Total
Cash $56,000
Accounts
Receivable $122,000
Prepaid expenses $13,522
Inventory $521,332
Total $712,854
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TRE ND ANALYSIS
Trend Analysis is comparing any of the analytical tests (e.g.
horizontal, vertical, ratios, etc.) or other financial or
operational data over two or more periods. Please note that
the use of Trend Analysis is practically a given in doing any
audit work, as fraud and errors tend to create variances over
time which would go undetected if only the single year was
being analyzed.
When considering Trend Analysis, there are two primary
sources of data: balances and transactions. If performing
Trend Analysis on transaction, first the transaction data must
be aggregated to create summary balances. Then the
summary balances can be presented in a table or graphically
via line chart. We will walk through this process by using a
PivotTable to convert transactions into balances, and then use
a PivotChart to graph those balances.
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PIVOT TABLE
A PivotTable is a data summarization tool found in data
visualization programs such as spreadsheets or business
intelligence software. Among other functions, pivot-table
tools can automatically sort, count, total or give the
average of the data stored in one table or spreadsheet. It
displays the results in a second table (called a "pivot
table") showing the summarized data.
Pivot tables are also useful for quickly creating
unweighted cross tabulations. The user sets up and
changes the summary's structure by dragging and
dropping fields graphically. This "rotation" or pivoting of
the summary table gives the concept its name.
3/24/2015 4:21 PM Parker&Associates, Inc 18
CONVERTING TRANSACTIONS TO BALANCES WITH
PIVOTTABLES
Exercise 1
Open Excel Workbook named trendanalysis.xlsx.
In this exercise we want to convert the
transactions into balances using PivotTable.
Our objective is to perform a Trend Analysis and
explore the sales of each item over time. In
order to create that analysis, we need to
combine all sales amounts groups by Month by
ItemID.
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CONVERTING TRANSACTIONS TO BALANCES WITH
PIVOTTABLES CONT.
Exercise 2: Adding Multiple Fields
In a PivotTable, we can drag multiple field items
into the row and column zones. For example if
we wanted to modify our PivotTable to show
sales by month across both Customers and
Items, we can simply add CustomerID into the
Column zone.
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CONVERTING TRANSACTIONS TO BALANCES WITH
PIVOTTABLES CONT.
Exercise 3: Remove a Field
You can always remove a field from a PivotTable, simply by
clicking and dragging the field items out of the PivotTable area
or by un-checking the field box. For example, lets now remove
the ItemID field from the column zone,
Exercise 4: Filtering of Data in PivotTable
Data can easily be filtered in PivotTable reports. It is done by
simply clicking on any of the field item (drop down) filter
controls, and check the boxes for the items you wish to show
in the PT and after making your selection and clicking the OK
button, the PT only includes the checked items.
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CONVERTING TRANSACTIONS TO BALANCES WITH
PIVOTTABLES CONT.
Exercise 5: Refreshing the PivotTable
When the underlying data in the PivotTable is change,
that is making changes to the original document from
which the table was made whether by entering data
between the existing ones or by adding addition data at
end, refreshing the table will update the table with all
new data enter within the data range. This is done by
following the following steps:
PivotTable>Options>Refresh
Refreshing data entered outside the data range can be
done using the following steps:
PivotTable>Options>Change Data Source
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CONVERTING TRANSACTIONS TO BALANCES WITH
PIVOTTABLES CONT.
Exercise 6: Double-clicking with PivotTable
The are several places you can double-click in a PivotTable. If
you double-click on any number, Excel will “drill down” and
create a new worksheet with all the transactions that support
the double-clicked number. If you double-click on any row or
column field group, Excel will toggle between Show Detail and
Hide Detail.
•Drill Down: means to access data or information organized in
hierarchical form by starting from general information and
moving through increasingly detailed data.
•Toggle: means a key or command that switches back and
forth between computer operations each time it is used.
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CONVERTING TRANSACTIONS TO BALANCES WITH
PIVOTTABLES CONT.
Exercise 7: Sorting PivotTable Reports
You can control the sort order of a PT report. The A>Z
button sorts the PivotTable using the data that exists right
now. Future data refreshes may not be sorted. A better
approach is to define the sort order within the PivotTable.
To define the sort order for example,
- Use the CustomerID combo box and select MORE SORT
OPTIONS
- In our case, we want to show the customer with most
sale on top, so we choose to sort the PT Descending by
Sum of Amount.
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CONVERTING TRANSACTIONS TO BALANCES WITH
PIVOTTABLES CONT.
Exercise 8: Formatting Number
To format numbers in a PivotTable, you will want to
define the formatting at the PivotTable level, not at the
worksheet cell level. In other words, do not highlight cells
and apply number formatting within the worksheets, as
you normally would. You will want to define the
formatting within the PivotTable, so that future refreshes
will retain the formatting. To format the number, simply
double-click the data field item, in our case “Sum of
Amount”, to bring up the Field Properties dialog box. Click
on the NUMBER FORMAT BUTTON, it will brings up the
Format Cells dialog, select the desired format and click
OK to apply the format to the PivotTable.
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CONVERTING TRANSACTIONS TO BALANCES WITH
PIVOTTABLES CONT.
Exercise 9: Page Fields
Page Fields can be thought of as “global filters”. Any
field item placed in the Page Fields area will filter
data. For example, we want to be able to filter the
sales data by item. We simply drag the ItemID field
in to the Page Fields area.
The PivotTable shows data for all ItemIDs. However,
interacting with the page fields control allows us to
filter the report to display only transaction we want
to see.
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PE RFORMANC E MEASURES
Performance measures help identify and quantify critical metrics and success
factors that can be tracked over time, and can contain both financial and
nonfinancial data. For example, the below list represents a sampling of
performance measures that could be used for accounts payable processing:
• Number of invoices processed.
• Number of invoices per vendor.
• Number of open invoices at period end.
• Top X vendor purchases (e.g. Top 10 vendor purchases).
• Percentage of adjustments to invoices processed.
• Number of hours overtime worked by staff
The Excel calculations for these performance measures can be performed
using worksheet functions like Sum(), Subtotal(), Count(), and others. We will
compute several of the above performance measures and demonstrate the
applicable Excel formulas.
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P E R F O R M A N C E M E A S U R E S C O N T.
NUMBER OF INVOICES PROCESSED
This type of analysis can be performed via several techniques: the Count()
function, the Subtotal() function, PivotTables, and the subtotals menu item,
just to name a few. The Count() function and the Subtotal() function will be
presented.
Exercise: To follow along, open the exercise workbook called “count.xls”. If our
underlying data contains one invoice per row like in this one, our task of
counting the number of invoices is simple because counting the number of
invoices is the same as counting the number of cells with numbers. The
easiest approach in this case is the Count() function, which counts the
number the cells with numbers (ignores blank cells and cells with text). The
Count() function has the following syntax:
= Count(range)
Where
•Range is the range to count (includes number, excludes blank cells and text
Cells3/24/2015 4:21 PM Parker&Associates, Inc 28
P E R F O R M A N C E M E A S U R E S C O N T.
SUBTOTAL FUNCTION
Purpose: The purpose of the subtotal function is to provide the user the
ability to efficiently and easily set up formulas that subtotal ranges of data,
while automatically excluding any other subtotals in the range.
Useful When: The subtotal function is useful when inserting subtotals in the
middle of the data. For example, balance sheets, income statements, cash
flow statements, or any other financial or operational statements that require
subtotaled data.
Details: The Subtotal() functions is similar to the Sum() function, with the
distinction that the Subtotal() function excludes any other Subtotal()
functions in the range. By contrast, the Sum() function will include all data in
the sum range, including other Sum() functions. The Subtotal() function will
add all data in the sum range except values provided by Subtotal() functions:
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P E R F O R M A N C E M E A S U R E S C O N T.
SUBTOTAL FUNCTION Cont.
The syntax for the Subtotal() function is
=SUBTOTAL(function_num, range)
Where
•Function_num indicates the mathematical function to use.
•Range is the range to subtotal
The first argument of the Subtotal() function is function_num, and may be a
new concept. Microsoft wanted to make the Subtotal() function very useful, it
wanted to enable the Subtotal() function to add values of the range, as well
as do other types of math, for example, compute the average of the range or
compute the minimum value of the range. Microsoft needed a way to allow
the user to tell the Subtotal() function which math to use. It provided us with
the function_num argument. Microsoft then assigned some arbitrary codes
(numbers) to the various math functions, which we use as the first argument.
So, when we want the Subtotal() function to add the values in the range, we
use 9 as the first argument or if we want the Subtotal() function to take the
average of the range, we use 1 for the first argument.3/24/2015 4:21 PM Parker&Associates, Inc 30
P E R F O R M A N C E M E A S U R E S C O N T.
SUBTOTAL FUNCTION Cont.
Here is a table of the main function_nums:
To practice the Subtotal() function, please
see the subtotal.xls workbook.
In this example the formula to use in D41 is
=SUBTOTAL(9,D31:40)
Where
•9 is the function _num for sum.
•D31:D40 is the range to subtotal
By altering the first function argument, we can
tell the Subtotal() function what type of math to apply to the range. By setting the first
argument to 2, we tell function to count the number of values in the range. The
formula is: =SUBTOTAL(2,range).
Count() and Subtotal() can quickly be used to compute the number of invoices
processed. If we want to compute the number of invoices processed by vendor, by
month, etc.. It is probably quickest to use a PivotTable.
Function_Num Function
1 AVERAGE
2 COUNT
3 COUNTA
4 MAX
5 MIN
6 PRODUCT
7 STDEV
8 STDEVP
9 SUM
10 VAR
11 VARP
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P E R F O R M A N C E M E A S U R E S C O N T.
NUMBER OF INVOICES PER VENDOR
To count the number of invoices per vendor, we will create a new PivotTable
by dragging the VendorID field into the Row region and the InvoiceID into the
Data region. Then, we instruct Excel to count the number of invoice. By
default, Excel sums numerical data placed into the Data region. The way to
tell Excel to change the math is to open the field properties dialog box for the
data field item (in this case InvoiceID), and then change the function from
Sum to Count. To open the field properties dialog box:
-Either right-click any number in the Total column and select Value Field
Settings, or double-click on the InvoiceID field label (Sum of InvoiceID).
-Select Count instead of Sum and click OK. The resulting PivotTable will count
the number of records (Invoices) per VendorID, thus providing the number of
invoices per vendor as requested.
To follow this exercise, open the exercise workbook called ptcount.xls.
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P E R F O R M A N C E M E A S U R E S C O N T.
TOP X VENDOR PURCGASES WITH AUTOFILTER
There are several techniques for pulling Top X of any data set, for example,
Top 10 vendor purchases. We will look at a simple feature called AutoFilter.
Purpose: The purpose of the AutoFilter menu item is to facilitate filtering data
from a data table. This command will create combo boxes that allow the user
to specify the filter criteria.
Useful When: The AutoFilter is useful when trying to analyze raw data. It is an
easy item to set up, and will allow you to sift through large amounts of data
quickly.
Detail: The AutoFilter menu item instructs Excel to set up combo boxes (or
“drop downs”) on each column header in a data table. The user can then
simply click a combo box to filter. Each of the unique values that exist in the
data for that particular column will be presented as a choice in the drop
down. Once the user selects criteria from the drop down, Excel shows only
those rows that satisfy the criteria. That is , Excel only displays rows where
the data in the row matches the value selected in the combo box. In addition,
custom filter definitions can be created, and you can filter on multiple
columns.3/24/2015 4:21 PM Parker&Associates, Inc 33
P E R F O R M A N C E M E A S U R E S C O N T.
TOP X VENDOR PURCGASES WITH AUTOFILTER
In order to follow, open exercise work book called topx.xls.
To turn on AutoFilter, select any cell with the range of data and then:
Click: Home>Sort & Filter>Filter, or Data>Filter.
As you can see, Excel provides drop down controls for the columns. We can interact with these
controls and apply a filter.
In our case, we want to see only those transactions where VendorID is 1001. So we would select
1001 from the VendorID drop down. Once applied, Excel shows only those rows meeting the
criteria.
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P E R F O R M A N C E M E A S U R E S C O N T.
TOP X VENDOR PURCGASES WITH AUTOFILTER
You may also gave noticed that the filter controls (drop downs) include
additional filter types that we can play with. One in particular enables us to
filter for the Top X values of a column. To apply a Top X filter, simply following
this:
-From the filter control drop down, select Number Filters > Top 10.
There are some options in the Top 10 AutoFilter dialog box, including the
ability to identify how many Top items to show. Once you click OK, the list is
filtered to include only the items selected.
NOTE: In an AutoFiltered list, the Subtotal() function only includes those rows
that are visible. This is unlike the Sum() function, which includes all rows in
filtered data, whether hidden or visible.
3/24/2015 4:21 PM Parker&Associates, Inc 35
R AT I O S & F O R M U L A E VA L U AT I O N
Ratio analysis is typically performed by comparing financial statement
balances with other financial statement balances. A list of common ratio tests
include the following:
Working Capitol Current Assets- Current Liabilites
Working Capitol Index Current Year WC – Prior Year WC
Current Ratio Current Assets/Current Liabilites
Inventory Turnover COGS/((Beginning Inventory+Ending Inventory)/2)
Debt To Equity Total Debt/Total Stockholders’ Equity
Operating Cash Flow Cash Flow from Operations/Current Liabilities
Cash Flow Interest Coverage (Cash Flow from Operations+Interest+Taxes Paid)/Interest Paid
Cash Flow to Capital Expenses Cash Flow from Operations/Capital Expenses
Cash Flow to Debt Cash Flow from Operations/Total Debt
Obsolete Inventory Ratio Obsolete Inventory/Ending Inventory
Sales Growth Index Current Year sales/Prior Year Sales
Gross Profit Sales – COGS
Gross Margin (Sales – COGS)/Sales
Gross Margin Index Current Year Gross Margin/Prior Year Gross Margin
Stock Sale Ending Inventory/Sales
Return on Equity Net Income/((Begin. Stockholders’ Equity/Ending Stockholders
Equity)/2)
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R AT I O S & F O R M U L A E VA L U AT I O N
Computing ratios with an electronic worksheet is straightforward. Simple ratios, such
as Working Capital and Current Ratio, we are easy to enter accurately into Excel. Some
of the more complex ratios like Inventory Turnover, however, can present a challenge.
The challenge simply is controlling the order of operations, that is, ensuring that Excel
computes the ratio as intended. Once we write the formula and press Enter, Excel will
give us a result. But, it can be hard for us to tell if the result is accurate. We know
Excel’s result is mechanically and mathematically accurate. But did we properly write
the formula to provide the ratio we intend? How do we know we put the parenthesis
in the right places? For example, how do we know we put the parenthesis in the right
places? For example, how do we know that Excel is, in fact, adding beginning
inventory and ending inventory, and then dividing the sum by 2 to determine the
average? Microsoft has provided us with the ability to see how Excel computes any
formula. This Excel feature comes in handy when evaluating complex formulas and
ratio calculations. The feature is the “Evaluate Formula” feature, and it essentially
walks you through each step of the formula computations.
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R AT I O S & F O R M U L A E VA L U AT I O N
For example let’s open the exercise workbook ratios.xls. In this example the formula is
already given to compute the Inventory Turnover. Our duty to evaluate if Excel did the
computation right.
The formula in C14 is
C11/C12+C13/2 computes
26,059.52. This number seem a
bit high for inventory turnover, so
to see how Excel is calculating the
formula, we launch the Evaluate
Formula feature by clicking: Formulas Tab > Evaluate Formula.
The Evaluate Formula dialog box will open and you will see, Excel underline the next
component of the formula it will evaluate. In our case, you can will see that C11 is
underlined, this indicating that C11 will be converted into its value. Clicking the
Evaluate button tells Excel to move to the next step. With the formula used, we
instructed Excel to divide the COGS by the Beg. Inventory , add the End Inventory to
the quotient and then divide by 2. With parentheses, the formula could be rewritten
to instruct Excel to compute the values inside first. The parentheses instruct Excel to
add C12 and C13, divide the result by 2 to determine average inventory. Then, to
divide C11 by the average inventory.
Using the Evaluate Formula feature enables us to see exactly how Excel computes all formulas,
and is handy when constructing complex formulas and ratios.
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STRATIFIC ATION
Stratifications count the number and/or dollar value of records
of a population falling within specified intervals. Stratifications
can also provide a useful view into the largest, smallest, and
average dollars transactions. This is useful in understanding a
process flow over time and related financial risk.
To prepare stratification reports, several Excel techniques are
available/ The sum can be quickly gathered with the Sumif()
function. For those who prefer graphical user interfaces, Wizards
Excel provides the Conditional Sum Wizard. Identifying the
largest, smallest, and average value in a range is easily
performed with the Max(), Min(), and Average() functions,
respectively.
3/24/2015 4:21 PM Parker&Associates, Inc 39
STRATIFIC ATION
Example: (SUMIF)
To follow along, we are to open workbook stratification.
In our engagement with West Electronics requires us to examine the invoice
transaction file. We would like to know the total dollar value of all “old”
invoices. That is, we would like to know the dollar value of all invoices dated
before our selected date We will use the Sumif() function to quickly
accomplish this task.
The Sumif() function adds the cells in the range that satisfy the specified
criteria. The functions has the following syntax:
=SUMIF(range,criteria,sum_range)
Where
Range is the range of cells that you want evaluated by criteria.
Criteria is the criteria in the form of a number, expression, or text that
defines which rows will be included in the sum.
Sum_range is the cells to sum when their corresponding columns in range
match criteria.
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STRATIFIC ATION
Example: (SUMIF)
Let us find out the sum of an invoice number. So, we need a way to tell Excel to sum all
those transactions where the Invoice# equals 21099, even if that Invoice# may appear
on several rows. We will construct the Sumif() function:
=SUMIF(B22:B490,D8,E22:E490)
Where
 B22:B490 is the range to compare against the criteria (Invoice#)
 D8 is the criteria that must be met in order for the row to be included in the sum.
 E22:E490 is the values (sum range) to sum if range meet criteria.
In the example, above, we told Excel to include those rows where Invoice# equaled
21099. since we wanted to include those rows that equaled a value (value in D8,
21099, the criteria (second function argument) was expressed simply as the cell
reference D8. The more difficult case is telling Excel to include values where the range
is greater than, or less than (instead of equal to), the criteria.
3/24/2015 4:21 PM Parker&Associates, Inc 41
STRATIFIC ATION
Example: (SUMIF)
In order to use greater than or less than logic, we will need to modify the
second argument of the Sumif() function. The modification is adding the < for
less than, or > for greater than, or <= for less than or equal to, or >= for
greater than or equal to. However, base on the way Excel formula syntax
works, we cannot simply enter the second argument as <D8, or >D8. We have
to use a special syntax, which is the concatenation syntax, as follows: “<“&D8
or “>”&D8.
To demonstrate this, let consider the next step in our engagement, which is to
get the total for all invoices dated before January 1, 2006. The formula to
write in E17 is
=SUMIF(D22:D490,“<”&D17,E22:E490)
Where
• D22:D490 is the range to evaluate, the Invoice Date column
• “<”&D17 is the criteria, less than the date in D17
• E22:E490 is the range of values to sum if the invoice date meets the
criteria
3/24/2015 4:21 PM Parker&Associates, Inc 42
STRATIFIC ATION
CONDITIONAL SUM WIZARD
Sometimes, it would be useful to be able to specify two or more criteria with
a Sumif() function. However, one limitation of the Sumif() function is that it
only accepts a single column in its criteria argument. The Condition Sum
Wizard allows us to specify multiple columns of criteria.
In our engagement with West Electronics, we need to determine the total of
invoices that are dated before January 1, 2006, and that are greater than
$5000. Therefore, we are going to use Conditional Sum Wizard to execute this
exercise.
The Conditional Sum Wizard Add-In is not installed by default, we must
manually install it. To do so, simply open the Add-In dialog box by clicking the
Office Button>Excel Options>Add-Ins>Manage Excel Add-Ins>Go.
3/24/2015 4:21 PM Parker&Associates, Inc 43
STRATIFIC ATION
LARGEST, SMALLEST, AND AVERAGE
Excel provides three easy functions to compute the largest value
in a range, the mallest value in a range, and the average value of
the range. They are Max(), Min(), and Average() respectively.
The syntax for these functions are as followed:
=MAX(range), where range is the range in which to find the
maximum value.
=MIN(range), where range is the range in which to find the
minimum value.
=AVERAGE(range), where range is the range you like to average.
3/24/2015 4:21 PM Parker&Associates, Inc 44
SAMPLING
Sampling is concerned with the selection of a subset of
individuals/data from within a population to estimate characteristics of
the whole population.
Example 1[Periodic Sampling) (refer to exercise workbook called
sampling.xls)
In our audit of West Electronics, we need the client to pull every 20th
employee file. In order to use sampling tools, we need to ensure that
the Analysis ToolPak is installed. To install this Add-In:
-Click the Office Bottom>Excel Options>Add-Ins>Manage Add-Ins>Go.
-Check the Analysis ToolPak box and click OK.
Now that the Analysis ToolPak has been installed, we have access to
Excel’s built-in sampling feature. To open the Sampling dialog box:
-Click Data Tab>Data Analysis
-Selecting Sampling form the Data Analysis dialog box and click OK
3/24/2015 4:21 PM Parker&Associates, Inc 45
SAMPLING
-Sampling dialog box will open.
-Enter the Input range, that is the range of cells
that contain data to pick a sample from.
-Select the Sampling Method, in this case we
want a Periodic sampling and include the Xth
number, in our case the 20th of EmployeeID.
-Select the Output Options, that is where we
want the result to appear. In our case, we would
like for the result to be side the original data.
-Click OK.
3/24/2015 4:21 PM Parker&Associates, Inc 46
SAMPLING
-Exercise 2 [Random Sampling]
We are to perform a random sampling of a list
checks cut for the year on every 10th item in the
listing. We will for the same step of the periodic
sampling.
3/24/2015 4:21 PM Parker&Associates, Inc 47
3/24/2015 4:21 PM Parker&Associates, Inc 48
THE END
Hope you had a better time learning about new
features in excel that will assist you in
accounting and auditing in excel. Go now and
impact it into your daily life at home or work.
Thanks for your attention!!!!
(YOUDON’T ALWAYSHAVETO BETHE BEST,BUTYOUALWAYSNEEDTO DOYOUBEST]
K. HORATIUSPORTE,BBA

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ACCOUNTING & AUDITING WITH EXCEL2011

  • 1. ACCOUNTING & AUDITING WITH EXCEL PRESENTER: KOLONEIZEE HORATIUS PORTE, BBA FOR STAFFS AT PARKER & ASSOCIATES, INC. 81 Sekou Toure Mamba Point, Monrovia
  • 2. TABLE OF CONTE NTS I. Methodology II. Objective of the Training Program III. Overview of Excel  Inserting Formula  Copying, Cutting and Pasting of Formula  Auto Filling of Formulas  Relative and Absolute Cell Referencing  Other aspects of Excel 3/24/2015 4:21 PM Parker&Associates, Inc 2
  • 3. TABLE OF CONTENTS IV. Analytical Procedures (SAS 56/AU 329) Analytical Tests  Horizontal Analysis  Vertical Analysis  Trend Analysis  Performance Measures  Ratios and Formula Evaluation  Stratification Sampling 3/24/2015 4:21 PM Parker&Associates, Inc 3
  • 4. M E THODOLOGY  A brief overview of Microsoft Excel and its basic functions and features  Practical exercises to see the impact or importance of Excel features in Accounting & Auditing. 3/24/2015 4:21 PM Parker&Associates, Inc 4
  • 5. OBJEC TIVE • To be able to work with basic features in Excel efficiently and effectively for Accounting and Auditing purposes. * Our case study will be West Electronics engagement workbook/spreadsheet. 3/24/2015 4:21 PM Parker&Associates, Inc 5
  • 6. OVERVIEW OF EXCEL  INSERTING OF FORMULA To insert a formula in Excel, follow the following steps: - Select the cell in which you want to insert the formula - Begin by typing the “Equal sign” (=) - Type/select your cell references, eg D10 - Press Enter or click on a different cell. Note: In order to get an answer/good result make sure there are figures in the cell references you type /selected. Also remember to close a parenthesis if you begin with one. Example: =B10+D10, =(B10-C10), =(D25*C13) & =B10/D10 3/24/2015 4:21 PM Parker&Associates, Inc 6
  • 7. • COPYING, CUTTING & PASTING OF FORMULAS To Copy: - Select the formula cell by clicking on it; - Go to Edit Menu and click “Copy”; for shortcut use the Ctr+C for copying formula; - Select the cell to wish you want to paste and go to Edit Menu and click Paste or shortcut use the Ctrl+V for pasting and press Enter. To Cut: - Select the formula cell by clicking on it; - Go to Edit Menu and click “Cut”; for shortcut use the Ctr+X for cutting formula; - Select the cell to wish you want to paste and go to Edit Menu and click Paste or shortcut use the Ctrl+V for pasting and press Enter. NOTE: There is a difference between “Copy” and “Cut”. Copy is duplicating formulas while Cut is moving formula from one cell to another without the original remaining. 3/24/2015 4:21 PM Parker&Associates, Inc 7
  • 8. A U T O F I L L I N G • To Auto-fill: - Select the formula cell of which you want to auto-fill by clicking on it; - Move your curser to the lower right corner of your selector; - The curser turns into a small black cross “+”, click and drag to the position you want to auto fill - Press Enter when you are through. Note: The selector is the black rectangle on the worksheet in Excel. 3/24/2015 4:21 PM Parker&Associates, Inc 8
  • 9. RELATIVE AND ABSOLUTE CELL REFERENCING RELATIVE CELL REFERENCING In Excel, a relative cell reference identifies the location of a cell or group of cells. Cell references are used in formulas, functions, charts, and other Excel commands. By default, a spreadsheet cell reference is relative. What this means is that as a formula or function is copied and pasted to other cells, the cell references in the formula or function change to reflect the function's new location. A relative cell reference consists of the column letter and row number that intersect at the cell's location. • An example of a relative cell reference would be C4, G15, or Z2345. Note: When listing a cell reference - either relative or absolute, the column letter is always listed first. 3/24/2015 4:21 PM Parker&Associates, Inc 9
  • 10. • ABSOLUTE CELL REFERENCING: In Excel, an absolute cell reference identifies the location of a cell or group of cells. An absolute cell reference consists of the column letter and row number surrounded by dollar signs ( $ ). An absolute cell reference is used when you want a cell reference to stay fixed on a specific cell. An absolute cell reference does not change when a formula is copied and pasted to other cells. • An example of an absolute cell reference would be $C$4, $G$15, or $A$345. Note: An easy way to add the dollar signs to a cell reference is to click on a cell reference and then press the F4 key on the keyboard. 3/24/2015 4:21 PM Parker&Associates, Inc 10
  • 11. OTHE R ASPEC TS OF E XC E L • Linking • Charts • Formatting of Cells • Etc….. 3/24/2015 4:21 PM Parker&Associates, Inc 11
  • 12. Analytical Procedures (SAS 56/AU329) SAS 56 provides guides on the use of analytical procedures and requires the use of analytical procedures in the planning and overall review stages of all audits. Analytical procedures are used: • To assist the auditor in planning the nature, timing, and extent of other auditing procedures. 3/24/2015 4:21 PM Parker&Associates, Inc 12
  • 13. • As a substantive test to obtain evidential matter about particular assertions related to account balances or classes of transactions. • As an overall review of the financial information in the final review stage of the audit. • To detect potential financial misstatements. 3/24/2015 4:21 PM Parker&Associates, Inc 13
  • 14. ANALYTIC AL TESTS Analytical tests are evaluations of financial information made by a study of possible relationships among both financial and nonfinancial data. They are used to assess whether account balances appear reasonable and are used in accordance with SAS 56. We will explore the following types of analytical tests: - Horizontal Analysis - Vertical Analysis - Trend Analysis - Performance Measures - Ratios and Formula Evaluation - Stratification 3/24/2015 4:21 PM Parker&Associates, Inc 14
  • 15. Ho rizo nta l Ana lysis Horizontal Analysis computes the increase and decrease in a given balance, normally financial statement items, over two or more periods. Open Excel spreadsheet (absolute_relative.xls) for example. NOTE: Relative Cell reference is use in Horizontal Analysis. In this example we want to write a formula once in Cell E10 and fill the formula down to get a better sense of this issue. Example CY PY Inc (dec) Cash $56,000 $57,988 Accounts Receivable $122,000 $115,964 Prepaid expenses $13,522 $14,500 Inventory $521,332 $592,481 Investments $19,451 $21,558 Deposits $2,511 $2,511 Intangible $74,153 $74,103 Goodwill $83,941 $83,281 Automobiles $58,771 $68,114 Improvements $26,571 $26,714 Leasehold $74,221 $74,183 Furniture, fixtures $84,211 $84,333 Computers $141,283 $158,741 Land $125,114 $125,114 Total $1,403,081 $1,499,585 3/24/2015 4:21 PM Parker&Associates, Inc 15
  • 16. VE RTIC AL ANALYSIS Vertical Analysis examines the elements of a financial statement for a single period whereby each balance sheet asset is shown as a percentage of the total assets and every income statement items shown as a percentage of the net sales, etc. Open Excel spreadsheet (absolute_relative.xls) and click the second worksheet for example. NOTE: Relative & Absolute Cell reference are use in Vertical Analysis. In this example we want to write a formula once in Cell D10 and fill the formula down to have it work. CY % of Total Cash $56,000 Accounts Receivable $122,000 Prepaid expenses $13,522 Inventory $521,332 Total $712,854 3/24/2015 4:21 PM Parker&Associates, Inc 16
  • 17. TRE ND ANALYSIS Trend Analysis is comparing any of the analytical tests (e.g. horizontal, vertical, ratios, etc.) or other financial or operational data over two or more periods. Please note that the use of Trend Analysis is practically a given in doing any audit work, as fraud and errors tend to create variances over time which would go undetected if only the single year was being analyzed. When considering Trend Analysis, there are two primary sources of data: balances and transactions. If performing Trend Analysis on transaction, first the transaction data must be aggregated to create summary balances. Then the summary balances can be presented in a table or graphically via line chart. We will walk through this process by using a PivotTable to convert transactions into balances, and then use a PivotChart to graph those balances. 3/24/2015 4:21 PM Parker&Associates, Inc 17
  • 18. PIVOT TABLE A PivotTable is a data summarization tool found in data visualization programs such as spreadsheets or business intelligence software. Among other functions, pivot-table tools can automatically sort, count, total or give the average of the data stored in one table or spreadsheet. It displays the results in a second table (called a "pivot table") showing the summarized data. Pivot tables are also useful for quickly creating unweighted cross tabulations. The user sets up and changes the summary's structure by dragging and dropping fields graphically. This "rotation" or pivoting of the summary table gives the concept its name. 3/24/2015 4:21 PM Parker&Associates, Inc 18
  • 19. CONVERTING TRANSACTIONS TO BALANCES WITH PIVOTTABLES Exercise 1 Open Excel Workbook named trendanalysis.xlsx. In this exercise we want to convert the transactions into balances using PivotTable. Our objective is to perform a Trend Analysis and explore the sales of each item over time. In order to create that analysis, we need to combine all sales amounts groups by Month by ItemID. 3/24/2015 4:21 PM Parker&Associates, Inc 19
  • 20. CONVERTING TRANSACTIONS TO BALANCES WITH PIVOTTABLES CONT. Exercise 2: Adding Multiple Fields In a PivotTable, we can drag multiple field items into the row and column zones. For example if we wanted to modify our PivotTable to show sales by month across both Customers and Items, we can simply add CustomerID into the Column zone. 3/24/2015 4:21 PM Parker&Associates, Inc 20
  • 21. CONVERTING TRANSACTIONS TO BALANCES WITH PIVOTTABLES CONT. Exercise 3: Remove a Field You can always remove a field from a PivotTable, simply by clicking and dragging the field items out of the PivotTable area or by un-checking the field box. For example, lets now remove the ItemID field from the column zone, Exercise 4: Filtering of Data in PivotTable Data can easily be filtered in PivotTable reports. It is done by simply clicking on any of the field item (drop down) filter controls, and check the boxes for the items you wish to show in the PT and after making your selection and clicking the OK button, the PT only includes the checked items. 3/24/2015 4:21 PM Parker&Associates, Inc 21
  • 22. CONVERTING TRANSACTIONS TO BALANCES WITH PIVOTTABLES CONT. Exercise 5: Refreshing the PivotTable When the underlying data in the PivotTable is change, that is making changes to the original document from which the table was made whether by entering data between the existing ones or by adding addition data at end, refreshing the table will update the table with all new data enter within the data range. This is done by following the following steps: PivotTable>Options>Refresh Refreshing data entered outside the data range can be done using the following steps: PivotTable>Options>Change Data Source 3/24/2015 4:21 PM Parker&Associates, Inc 22
  • 23. CONVERTING TRANSACTIONS TO BALANCES WITH PIVOTTABLES CONT. Exercise 6: Double-clicking with PivotTable The are several places you can double-click in a PivotTable. If you double-click on any number, Excel will “drill down” and create a new worksheet with all the transactions that support the double-clicked number. If you double-click on any row or column field group, Excel will toggle between Show Detail and Hide Detail. •Drill Down: means to access data or information organized in hierarchical form by starting from general information and moving through increasingly detailed data. •Toggle: means a key or command that switches back and forth between computer operations each time it is used. 3/24/2015 4:21 PM Parker&Associates, Inc 23
  • 24. CONVERTING TRANSACTIONS TO BALANCES WITH PIVOTTABLES CONT. Exercise 7: Sorting PivotTable Reports You can control the sort order of a PT report. The A>Z button sorts the PivotTable using the data that exists right now. Future data refreshes may not be sorted. A better approach is to define the sort order within the PivotTable. To define the sort order for example, - Use the CustomerID combo box and select MORE SORT OPTIONS - In our case, we want to show the customer with most sale on top, so we choose to sort the PT Descending by Sum of Amount. 3/24/2015 4:21 PM Parker&Associates, Inc 24
  • 25. CONVERTING TRANSACTIONS TO BALANCES WITH PIVOTTABLES CONT. Exercise 8: Formatting Number To format numbers in a PivotTable, you will want to define the formatting at the PivotTable level, not at the worksheet cell level. In other words, do not highlight cells and apply number formatting within the worksheets, as you normally would. You will want to define the formatting within the PivotTable, so that future refreshes will retain the formatting. To format the number, simply double-click the data field item, in our case “Sum of Amount”, to bring up the Field Properties dialog box. Click on the NUMBER FORMAT BUTTON, it will brings up the Format Cells dialog, select the desired format and click OK to apply the format to the PivotTable. 3/24/2015 4:21 PM Parker&Associates, Inc 25
  • 26. CONVERTING TRANSACTIONS TO BALANCES WITH PIVOTTABLES CONT. Exercise 9: Page Fields Page Fields can be thought of as “global filters”. Any field item placed in the Page Fields area will filter data. For example, we want to be able to filter the sales data by item. We simply drag the ItemID field in to the Page Fields area. The PivotTable shows data for all ItemIDs. However, interacting with the page fields control allows us to filter the report to display only transaction we want to see. 3/24/2015 4:21 PM Parker&Associates, Inc 26
  • 27. PE RFORMANC E MEASURES Performance measures help identify and quantify critical metrics and success factors that can be tracked over time, and can contain both financial and nonfinancial data. For example, the below list represents a sampling of performance measures that could be used for accounts payable processing: • Number of invoices processed. • Number of invoices per vendor. • Number of open invoices at period end. • Top X vendor purchases (e.g. Top 10 vendor purchases). • Percentage of adjustments to invoices processed. • Number of hours overtime worked by staff The Excel calculations for these performance measures can be performed using worksheet functions like Sum(), Subtotal(), Count(), and others. We will compute several of the above performance measures and demonstrate the applicable Excel formulas. 3/24/2015 4:21 PM Parker&Associates, Inc 27
  • 28. P E R F O R M A N C E M E A S U R E S C O N T. NUMBER OF INVOICES PROCESSED This type of analysis can be performed via several techniques: the Count() function, the Subtotal() function, PivotTables, and the subtotals menu item, just to name a few. The Count() function and the Subtotal() function will be presented. Exercise: To follow along, open the exercise workbook called “count.xls”. If our underlying data contains one invoice per row like in this one, our task of counting the number of invoices is simple because counting the number of invoices is the same as counting the number of cells with numbers. The easiest approach in this case is the Count() function, which counts the number the cells with numbers (ignores blank cells and cells with text). The Count() function has the following syntax: = Count(range) Where •Range is the range to count (includes number, excludes blank cells and text Cells3/24/2015 4:21 PM Parker&Associates, Inc 28
  • 29. P E R F O R M A N C E M E A S U R E S C O N T. SUBTOTAL FUNCTION Purpose: The purpose of the subtotal function is to provide the user the ability to efficiently and easily set up formulas that subtotal ranges of data, while automatically excluding any other subtotals in the range. Useful When: The subtotal function is useful when inserting subtotals in the middle of the data. For example, balance sheets, income statements, cash flow statements, or any other financial or operational statements that require subtotaled data. Details: The Subtotal() functions is similar to the Sum() function, with the distinction that the Subtotal() function excludes any other Subtotal() functions in the range. By contrast, the Sum() function will include all data in the sum range, including other Sum() functions. The Subtotal() function will add all data in the sum range except values provided by Subtotal() functions: 3/24/2015 4:21 PM Parker&Associates, Inc 29
  • 30. P E R F O R M A N C E M E A S U R E S C O N T. SUBTOTAL FUNCTION Cont. The syntax for the Subtotal() function is =SUBTOTAL(function_num, range) Where •Function_num indicates the mathematical function to use. •Range is the range to subtotal The first argument of the Subtotal() function is function_num, and may be a new concept. Microsoft wanted to make the Subtotal() function very useful, it wanted to enable the Subtotal() function to add values of the range, as well as do other types of math, for example, compute the average of the range or compute the minimum value of the range. Microsoft needed a way to allow the user to tell the Subtotal() function which math to use. It provided us with the function_num argument. Microsoft then assigned some arbitrary codes (numbers) to the various math functions, which we use as the first argument. So, when we want the Subtotal() function to add the values in the range, we use 9 as the first argument or if we want the Subtotal() function to take the average of the range, we use 1 for the first argument.3/24/2015 4:21 PM Parker&Associates, Inc 30
  • 31. P E R F O R M A N C E M E A S U R E S C O N T. SUBTOTAL FUNCTION Cont. Here is a table of the main function_nums: To practice the Subtotal() function, please see the subtotal.xls workbook. In this example the formula to use in D41 is =SUBTOTAL(9,D31:40) Where •9 is the function _num for sum. •D31:D40 is the range to subtotal By altering the first function argument, we can tell the Subtotal() function what type of math to apply to the range. By setting the first argument to 2, we tell function to count the number of values in the range. The formula is: =SUBTOTAL(2,range). Count() and Subtotal() can quickly be used to compute the number of invoices processed. If we want to compute the number of invoices processed by vendor, by month, etc.. It is probably quickest to use a PivotTable. Function_Num Function 1 AVERAGE 2 COUNT 3 COUNTA 4 MAX 5 MIN 6 PRODUCT 7 STDEV 8 STDEVP 9 SUM 10 VAR 11 VARP 3/24/2015 4:21 PM Parker&Associates, Inc 31
  • 32. P E R F O R M A N C E M E A S U R E S C O N T. NUMBER OF INVOICES PER VENDOR To count the number of invoices per vendor, we will create a new PivotTable by dragging the VendorID field into the Row region and the InvoiceID into the Data region. Then, we instruct Excel to count the number of invoice. By default, Excel sums numerical data placed into the Data region. The way to tell Excel to change the math is to open the field properties dialog box for the data field item (in this case InvoiceID), and then change the function from Sum to Count. To open the field properties dialog box: -Either right-click any number in the Total column and select Value Field Settings, or double-click on the InvoiceID field label (Sum of InvoiceID). -Select Count instead of Sum and click OK. The resulting PivotTable will count the number of records (Invoices) per VendorID, thus providing the number of invoices per vendor as requested. To follow this exercise, open the exercise workbook called ptcount.xls. 3/24/2015 4:21 PM Parker&Associates, Inc 32
  • 33. P E R F O R M A N C E M E A S U R E S C O N T. TOP X VENDOR PURCGASES WITH AUTOFILTER There are several techniques for pulling Top X of any data set, for example, Top 10 vendor purchases. We will look at a simple feature called AutoFilter. Purpose: The purpose of the AutoFilter menu item is to facilitate filtering data from a data table. This command will create combo boxes that allow the user to specify the filter criteria. Useful When: The AutoFilter is useful when trying to analyze raw data. It is an easy item to set up, and will allow you to sift through large amounts of data quickly. Detail: The AutoFilter menu item instructs Excel to set up combo boxes (or “drop downs”) on each column header in a data table. The user can then simply click a combo box to filter. Each of the unique values that exist in the data for that particular column will be presented as a choice in the drop down. Once the user selects criteria from the drop down, Excel shows only those rows that satisfy the criteria. That is , Excel only displays rows where the data in the row matches the value selected in the combo box. In addition, custom filter definitions can be created, and you can filter on multiple columns.3/24/2015 4:21 PM Parker&Associates, Inc 33
  • 34. P E R F O R M A N C E M E A S U R E S C O N T. TOP X VENDOR PURCGASES WITH AUTOFILTER In order to follow, open exercise work book called topx.xls. To turn on AutoFilter, select any cell with the range of data and then: Click: Home>Sort & Filter>Filter, or Data>Filter. As you can see, Excel provides drop down controls for the columns. We can interact with these controls and apply a filter. In our case, we want to see only those transactions where VendorID is 1001. So we would select 1001 from the VendorID drop down. Once applied, Excel shows only those rows meeting the criteria. 3/24/2015 4:21 PM Parker&Associates, Inc 34
  • 35. P E R F O R M A N C E M E A S U R E S C O N T. TOP X VENDOR PURCGASES WITH AUTOFILTER You may also gave noticed that the filter controls (drop downs) include additional filter types that we can play with. One in particular enables us to filter for the Top X values of a column. To apply a Top X filter, simply following this: -From the filter control drop down, select Number Filters > Top 10. There are some options in the Top 10 AutoFilter dialog box, including the ability to identify how many Top items to show. Once you click OK, the list is filtered to include only the items selected. NOTE: In an AutoFiltered list, the Subtotal() function only includes those rows that are visible. This is unlike the Sum() function, which includes all rows in filtered data, whether hidden or visible. 3/24/2015 4:21 PM Parker&Associates, Inc 35
  • 36. R AT I O S & F O R M U L A E VA L U AT I O N Ratio analysis is typically performed by comparing financial statement balances with other financial statement balances. A list of common ratio tests include the following: Working Capitol Current Assets- Current Liabilites Working Capitol Index Current Year WC – Prior Year WC Current Ratio Current Assets/Current Liabilites Inventory Turnover COGS/((Beginning Inventory+Ending Inventory)/2) Debt To Equity Total Debt/Total Stockholders’ Equity Operating Cash Flow Cash Flow from Operations/Current Liabilities Cash Flow Interest Coverage (Cash Flow from Operations+Interest+Taxes Paid)/Interest Paid Cash Flow to Capital Expenses Cash Flow from Operations/Capital Expenses Cash Flow to Debt Cash Flow from Operations/Total Debt Obsolete Inventory Ratio Obsolete Inventory/Ending Inventory Sales Growth Index Current Year sales/Prior Year Sales Gross Profit Sales – COGS Gross Margin (Sales – COGS)/Sales Gross Margin Index Current Year Gross Margin/Prior Year Gross Margin Stock Sale Ending Inventory/Sales Return on Equity Net Income/((Begin. Stockholders’ Equity/Ending Stockholders Equity)/2) 3/24/2015 4:21 PM Parker&Associates, Inc 36
  • 37. R AT I O S & F O R M U L A E VA L U AT I O N Computing ratios with an electronic worksheet is straightforward. Simple ratios, such as Working Capital and Current Ratio, we are easy to enter accurately into Excel. Some of the more complex ratios like Inventory Turnover, however, can present a challenge. The challenge simply is controlling the order of operations, that is, ensuring that Excel computes the ratio as intended. Once we write the formula and press Enter, Excel will give us a result. But, it can be hard for us to tell if the result is accurate. We know Excel’s result is mechanically and mathematically accurate. But did we properly write the formula to provide the ratio we intend? How do we know we put the parenthesis in the right places? For example, how do we know we put the parenthesis in the right places? For example, how do we know that Excel is, in fact, adding beginning inventory and ending inventory, and then dividing the sum by 2 to determine the average? Microsoft has provided us with the ability to see how Excel computes any formula. This Excel feature comes in handy when evaluating complex formulas and ratio calculations. The feature is the “Evaluate Formula” feature, and it essentially walks you through each step of the formula computations. 3/24/2015 4:21 PM Parker&Associates, Inc 37
  • 38. R AT I O S & F O R M U L A E VA L U AT I O N For example let’s open the exercise workbook ratios.xls. In this example the formula is already given to compute the Inventory Turnover. Our duty to evaluate if Excel did the computation right. The formula in C14 is C11/C12+C13/2 computes 26,059.52. This number seem a bit high for inventory turnover, so to see how Excel is calculating the formula, we launch the Evaluate Formula feature by clicking: Formulas Tab > Evaluate Formula. The Evaluate Formula dialog box will open and you will see, Excel underline the next component of the formula it will evaluate. In our case, you can will see that C11 is underlined, this indicating that C11 will be converted into its value. Clicking the Evaluate button tells Excel to move to the next step. With the formula used, we instructed Excel to divide the COGS by the Beg. Inventory , add the End Inventory to the quotient and then divide by 2. With parentheses, the formula could be rewritten to instruct Excel to compute the values inside first. The parentheses instruct Excel to add C12 and C13, divide the result by 2 to determine average inventory. Then, to divide C11 by the average inventory. Using the Evaluate Formula feature enables us to see exactly how Excel computes all formulas, and is handy when constructing complex formulas and ratios. 3/24/2015 4:21 PM Parker&Associates, Inc 38
  • 39. STRATIFIC ATION Stratifications count the number and/or dollar value of records of a population falling within specified intervals. Stratifications can also provide a useful view into the largest, smallest, and average dollars transactions. This is useful in understanding a process flow over time and related financial risk. To prepare stratification reports, several Excel techniques are available/ The sum can be quickly gathered with the Sumif() function. For those who prefer graphical user interfaces, Wizards Excel provides the Conditional Sum Wizard. Identifying the largest, smallest, and average value in a range is easily performed with the Max(), Min(), and Average() functions, respectively. 3/24/2015 4:21 PM Parker&Associates, Inc 39
  • 40. STRATIFIC ATION Example: (SUMIF) To follow along, we are to open workbook stratification. In our engagement with West Electronics requires us to examine the invoice transaction file. We would like to know the total dollar value of all “old” invoices. That is, we would like to know the dollar value of all invoices dated before our selected date We will use the Sumif() function to quickly accomplish this task. The Sumif() function adds the cells in the range that satisfy the specified criteria. The functions has the following syntax: =SUMIF(range,criteria,sum_range) Where Range is the range of cells that you want evaluated by criteria. Criteria is the criteria in the form of a number, expression, or text that defines which rows will be included in the sum. Sum_range is the cells to sum when their corresponding columns in range match criteria. 3/24/2015 4:21 PM Parker&Associates, Inc 40
  • 41. STRATIFIC ATION Example: (SUMIF) Let us find out the sum of an invoice number. So, we need a way to tell Excel to sum all those transactions where the Invoice# equals 21099, even if that Invoice# may appear on several rows. We will construct the Sumif() function: =SUMIF(B22:B490,D8,E22:E490) Where  B22:B490 is the range to compare against the criteria (Invoice#)  D8 is the criteria that must be met in order for the row to be included in the sum.  E22:E490 is the values (sum range) to sum if range meet criteria. In the example, above, we told Excel to include those rows where Invoice# equaled 21099. since we wanted to include those rows that equaled a value (value in D8, 21099, the criteria (second function argument) was expressed simply as the cell reference D8. The more difficult case is telling Excel to include values where the range is greater than, or less than (instead of equal to), the criteria. 3/24/2015 4:21 PM Parker&Associates, Inc 41
  • 42. STRATIFIC ATION Example: (SUMIF) In order to use greater than or less than logic, we will need to modify the second argument of the Sumif() function. The modification is adding the < for less than, or > for greater than, or <= for less than or equal to, or >= for greater than or equal to. However, base on the way Excel formula syntax works, we cannot simply enter the second argument as <D8, or >D8. We have to use a special syntax, which is the concatenation syntax, as follows: “<“&D8 or “>”&D8. To demonstrate this, let consider the next step in our engagement, which is to get the total for all invoices dated before January 1, 2006. The formula to write in E17 is =SUMIF(D22:D490,“<”&D17,E22:E490) Where • D22:D490 is the range to evaluate, the Invoice Date column • “<”&D17 is the criteria, less than the date in D17 • E22:E490 is the range of values to sum if the invoice date meets the criteria 3/24/2015 4:21 PM Parker&Associates, Inc 42
  • 43. STRATIFIC ATION CONDITIONAL SUM WIZARD Sometimes, it would be useful to be able to specify two or more criteria with a Sumif() function. However, one limitation of the Sumif() function is that it only accepts a single column in its criteria argument. The Condition Sum Wizard allows us to specify multiple columns of criteria. In our engagement with West Electronics, we need to determine the total of invoices that are dated before January 1, 2006, and that are greater than $5000. Therefore, we are going to use Conditional Sum Wizard to execute this exercise. The Conditional Sum Wizard Add-In is not installed by default, we must manually install it. To do so, simply open the Add-In dialog box by clicking the Office Button>Excel Options>Add-Ins>Manage Excel Add-Ins>Go. 3/24/2015 4:21 PM Parker&Associates, Inc 43
  • 44. STRATIFIC ATION LARGEST, SMALLEST, AND AVERAGE Excel provides three easy functions to compute the largest value in a range, the mallest value in a range, and the average value of the range. They are Max(), Min(), and Average() respectively. The syntax for these functions are as followed: =MAX(range), where range is the range in which to find the maximum value. =MIN(range), where range is the range in which to find the minimum value. =AVERAGE(range), where range is the range you like to average. 3/24/2015 4:21 PM Parker&Associates, Inc 44
  • 45. SAMPLING Sampling is concerned with the selection of a subset of individuals/data from within a population to estimate characteristics of the whole population. Example 1[Periodic Sampling) (refer to exercise workbook called sampling.xls) In our audit of West Electronics, we need the client to pull every 20th employee file. In order to use sampling tools, we need to ensure that the Analysis ToolPak is installed. To install this Add-In: -Click the Office Bottom>Excel Options>Add-Ins>Manage Add-Ins>Go. -Check the Analysis ToolPak box and click OK. Now that the Analysis ToolPak has been installed, we have access to Excel’s built-in sampling feature. To open the Sampling dialog box: -Click Data Tab>Data Analysis -Selecting Sampling form the Data Analysis dialog box and click OK 3/24/2015 4:21 PM Parker&Associates, Inc 45
  • 46. SAMPLING -Sampling dialog box will open. -Enter the Input range, that is the range of cells that contain data to pick a sample from. -Select the Sampling Method, in this case we want a Periodic sampling and include the Xth number, in our case the 20th of EmployeeID. -Select the Output Options, that is where we want the result to appear. In our case, we would like for the result to be side the original data. -Click OK. 3/24/2015 4:21 PM Parker&Associates, Inc 46
  • 47. SAMPLING -Exercise 2 [Random Sampling] We are to perform a random sampling of a list checks cut for the year on every 10th item in the listing. We will for the same step of the periodic sampling. 3/24/2015 4:21 PM Parker&Associates, Inc 47
  • 48. 3/24/2015 4:21 PM Parker&Associates, Inc 48 THE END Hope you had a better time learning about new features in excel that will assist you in accounting and auditing in excel. Go now and impact it into your daily life at home or work. Thanks for your attention!!!! (YOUDON’T ALWAYSHAVETO BETHE BEST,BUTYOUALWAYSNEEDTO DOYOUBEST] K. HORATIUSPORTE,BBA